Question : Assertion (A) :The Product Method / technique is used to determine interest on drawings when a partner's withdrawals are made at different times or for different amounts.
Reason (R): Interest on Drawings is incurred while a partner is drawing on them. Average methods cannot be used to calculate interest on capital if the number of draws or the length of time they are made are not constant.
Option 1: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Option 2: Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
Option 3: Assertion (A) is true but the Reason (R) is false
Option 4: Assertion (A) is false but the Reason (R) is true
Correct Answer: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
Solution : The PRODUCT METHOD of computing interest on withdrawals is utilised when various amounts are withdrawn on various dates. This method multiplies the amount of each drawing by the length of time. The amount of all the products is then totalled, and interest is computed for a month based on that total. Interest on Drawings = Products Total*Interest Rate*1/12
Hence the correct answer is option 1.
Question : Assertion (A): A partner's interest on capital is paid only from profits. Reason (R): Interest on capital is a profit appropriation that must be provided regardless of profit or loss.
Option 3: Assertion (A) is true but Reason (R) is False
Option 4: Assertion (A) if false and Reason (R) is true
Question : Assertion (A) : Profit and Loss Appropriation account shows the correct profit earned by the firm.
Reason (R) : The net Profit adjusted after takin into account the interest on capital, Interest on drawings, Salaries/ Commission Paid to the partner in the P/L appropriation account.
Option 3: Assertion (A) is true, But Reason (R) is false
Option 4: Assertion (A) is False, But Reason (R) is True
Question : Assertion (A): In order to make up for the partner's capital contribution that exceeds the profit-sharing ratio, the company pays interest on his capital.
Reason (R): Interest on capital is a charge against profit.
Option 3: Assertion (A) is true but Reason (R) is false
Option 4: Both Assertion (A) and Reason (R) are not correct
Question : Assertion (A): In order to compensate a partner for contributing capital to the firm in excess of the profit-sharing ratio, the firm pays such interest on the partner's capital. Reason (R): Interest on capital is treated as a charge against profit.
Option 2: Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion (A)
Option 4: Assertion (A) is false but Reason (R) is true
Question : Assertion (A): A partner's salary is deducted from the profit and loss account.
Reason (R): A partner's salary is a appropriation of profit.
Regular exam updates, QnA, Predictors, College Applications & E-books now on your Mobile